An article in the Guardian on 16 April 2011 highlighted the fact that many people ignore this valuable cover. Many of the points made in the article are included in the comments below.
What would happen if you fell so seriously ill you could not work for several months?
Only a small number of us could give a confident answer. One in 10 employees is covered by income protection insurance by their employer and, if their claim were accepted, would get a significant proportion of their salary paid.
The rest of us would probably be dependent on our employer's willingness to continue paying us, the State, the earnings of a partner, or on our savings. In the worst cases, we may end up selling our home, or downsizing, if we could not meet the mortgage or rent. In most cases, we would be much more aware of having difficulty paying everyday bills.
Employers are not obliged to keep paying people in these situations, and even the more generous among them tend to pay a full salary for three months and then half pay for the next three. Support is available from the State, in the form of statutory sick pay, but it is not generous. The standard payout is £81.60 a week, while employment and support allowance pays up to £99.85 a week.
Keen to reduce costs, the government has set up a review of long-term sickness. Due to report later this year, it could recommend requiring employers and employees to buy insurance. The bandwagon is already rolling.
Demos, the thinktank, has published its “Of Mutual Benefit” report, urging the government to encourage "the take-up of personal welfare insurance through national insurance rebates".
According to Demos: "Employment support allowance penalises savers and homeowners by means-testing for savings above £16,000, punishing good financial planning and leaving middle earners more open to the financial shock in the case of unemployment."
So how much does it cost to cover yourself privately? As the table shows, a 35-year-old man would pay an average of £24 a month for an indefinite £1,000-a-month payment, and a 35-year-old woman would pay £36 for the same cover (although the two rates should be expected to harmonise at about £30 a month following the recent ruling on unisex rates).
The cost of private income protection,
Cheapest per month Most costly Average
Man £9.78 £45.03 £24
Woman £11.76 £60.63 £36
Notes: Both these examples cover a 35-year old person, buying a policy that kicks in after 13 weeks, providing £1,000 a month of income protection, which could last until the age of 65.
Source: Guardian newspaper
Unfortunately, paying nearly £400 more a year for one specialist insurance is far more than most people feel they can afford. However, for some people, particularly the self employed, this type of cover may be more important than life assurance.
For more information contact Mark Reidford mreidford@innesreid.co.uk
